Personal injury market shrinks after reforms to the sector claims government body

The personal injury compensation claims sector is shrinking as a direct result of government reforms a government body has claimed. The scale of this contraction, according to the Claims Management Regulator, a body managed by the Ministry of Justice, is significant. The CMR has confirmed ‘notable decreases’ were ‘suffered’ in the personal injury claim sector during the year.

How far has the personal injury market shrunk since government reforms were introduced?

In its annual report, published earlier this month, the CMR found that turnover for the claims’ management personal injury sector fell by 15 per cent in 2016/17 to £182m. The CMR attributed this significant fall to a number of ongoing challenges in the market following government reforms in recent years. The scale of the fall is indeed significant when viewed against the figures 2014/15, where turnover in the sector topped £300m. The CMR also found the number of claims management companies operating in the sector was also down: authorised CMCs operating in the personal injury sector fell from 979 in 2015 to 762 in 2017.

The CMR said the hierarchy within the personal injury claims management sector had not changed over the course of the year, with a small number of businesses still holding a dominant share of the market. The CMR predicted that this dominance is likely to continue, as both proposed and imminent government person injury sector reforms make it a less attractive prospect for new businesses: applications from businesses intending to operate in the personal injury sector were down by 47 per cent in the year.

The CMR claims that ‘future uncertainty and difficulties in business planning’ make new investment in the sector less attractive. The government is also likely to increase the small claims limit for road traffic accident claims to £5,000 and is in the process of legislating for a tariff system for whiplash damages, thus making the investment potential even less attractive.

What did the CMR discover about practices within the personal injury sector?

The CMR said the evidence showed that the market has continued to develop various business models in order to comply with the ban on referral fees introduced post April 2013. Where problems were identified, businesses were encouraged to make appropriate changes to their models by working with the solicitors receiving the claims. However, not all businesses complied with the sanctioned rules.

Regulators focused on a small number of CMCs that entered into a contract with personal injury clients under a damages-based agreement, where the CMC received a percentage of the client’s damages if the claim is successful. The CMR report confirmed many of those audited were failing to comply with regulations on damages-based agreements, though most of the companies using this model have ceased to do so.

The CMC carried out 878 visits and 202 audits to check companies were complying with the referral fee ban and other conduct rules, with much of the focus on CMC telemarketing personal injury claims services. In total, 50 warnings were issued where rule breaches were identified and searches were made at multiple premises of one particular CMC.